US Securities and Exchange Commission issues concept release on foreign private issuer eligibility

On June 4, 2025, the US Securities and Exchange Commission (the Commission) issued a 71-page concept release seeking public comment on whether to amend the current eligibility criteria for foreign private issuer (FPI) status under the US securities laws. The Commission cited certain developments within the FPI population that have prompted it to consider whether the current FPI definition continues to reflect the issuers that it intended to benefit from the current accommodations granted to FPIs while continuing to protect investors and promote capital formation.

The concept release marks the first comprehensive review of the FPI regulatory framework since 2008 and signals a potential material shift in the regulatory framework applicable to non-US issuers accessing the US capital markets.

The comment period will be open for 90 days following publication of the comment request in the Federal Register.

Why it matters

Foreign issuers that qualify as an FPI are afforded significant accommodations and exemptions under the reporting, disclosure, corporate governance and other requirements imposed by the US securities laws and US securities exchanges.

Should the Commission revise the FPI definition, a significant number of foreign companies currently qualifying for, and benefiting from, FPI status may no longer qualify as an FPI and would be required to comply with the more stringent, burdensome and costly reporting and disclosure obligations applicable to US domestic issuers. They may also need to implement costly changes to their financial and accounting framework, reporting and systems, including preparing financial statements in accordance with US GAAP.

Current FPI definition

The current FPI definition is contained in Rule 405 of the Securities Act of 1933 (the Securities Act) and Rule 3b-4 of the Securities Exchange Act of 1934 (the Exchange Act) and includes a two prong “shareholder test" and "business contacts test."

Under the “shareholder test” prong, any foreign issuer (other than a foreign government) that has 50 percent or less of its outstanding voting securities “held of record” directly or indirectly by US residents qualifies as an FPI.

A foreign issuer (other than a foreign government) that fails the “shareholder test” prong may still qualify as an FPI under the “business contacts test” prong if it has none of the following contacts with the United States: (1) a majority of its executive officers or directors are US citizens or residents; (2) more than 50 percent of its assets are located in the United States; or (3) its business is administered principally in the United States.

For an Exchange Act reporting issuer, FPI eligibility is determined annually as of the end of a foreign issuer’s second fiscal quarter. A foreign issuer filing an initial registration statement under the Securities Act or the Exchange Act determines its FPI status as of a date within 30 days prior to filing.

Current regulatory accommodations

FPIs benefit from significant accommodations and exemptions under the reporting, disclosure, corporate governance and other requirements imposed by the US securities laws and US securities exchanges. The concept release notes that the Commission provided these accommodations and exemptions based on its understanding that most FPIs would be subject to meaningful disclosure and other regulatory requirements in their “home country” jurisdictions and that FPIs’ securities would be traded in non-US markets.

Some of the most important accommodations from which FPIs benefit compared to US domestic issuers include, but are not limited to, the following:

• FPIs are required to file annual reports on Form 20-F, which conforms to the international disclosure standards endorsed by the International Organization of Securities Commissions (IOSCO) and have less specific disclosure requirements than those required in annual reports on Form 10-K filed by US domestic issuers, including with respect to executive compensation and individualized executive compensation.
• FPIs have until four months after their fiscal year-end to file annual reports on Form 20-F, as opposed to the 60, 75 or 90 days US domestic issuers are required to file annual reports on Form 10-K.
• FPIs are not required to file quarterly reports and are exempt from proxy requirements applicable to US domestic issuers that specify procedures and required documentation for soliciting shareholder votes.
• FPIs are exempt from say-on-pay rules that require US domestic issuers to periodically enable shareholders to make certain advisory votes.
• FPIs may present their financial statements using (1) International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), (2) generally accepted accounting principles in the United States (US GAAP) or (3) a comprehensive set of accounting principles other than US GAAP and IFRS as issued by the IASB with a reconciliation to US GAAP.
• FPIs are not required to file or furnish current reports on Form 8-K within specified timeframes (usually four business days) after specific events occur like US domestic issuers, and instead furnish current reports on Form 6-K promptly with any information that they make public in their “home country” jurisdiction, file with a stock exchange on which their securities are traded that is made public or distribute to their security holders.
• Executive officers, directors and 10 percent or greater beneficial owners of FPIs are exempt from the reporting and “short swing” profit recovery provisions under Section 16 of the Exchange Act.
• FPIs are exempt from many of the corporate governance requirements imposed on US domestic issuers by both Nasdaq and the NYSE, provided they disclose any significant differences between their “home country” practices and US standards. For example, FPIs are exempt from the requirements to maintain a board with a majority of independent directors, establish fully independent nominating or compensation committees or obtain shareholder approval for equity compensation plans or certain significant corporate actions including, in the case of Nasdaq, discounted private placements or acquisition transactions involving the issuance or potential issuance of shares of common stock constituting 20 percent or more of the outstanding voting power or shares of the issuer’s common stock, and in the case of the NYSE, similar exemptions provided to FPIs in practice.

Key considerations in the concept release

In its review of FPIs subject to Exchange Act reporting, the Commission cited a significant shift over the last two decades in the jurisdictions where FPIs are incorporated and where they have their headquarters. Specifically, Canada and the United Kingdom were the most common jurisdictions where FPIs were incorporated and had their headquarters in 2003. By 2023, the Cayman Islands became the most common jurisdiction of incorporation for FPIs, and mainland China the most common jurisdiction for the headquarters of FPIs. The Commission also noted a substantial increase in FPIs with different jurisdictions of incorporation from where their headquarters are located, increasing from 7 percent in 2003 to 48 percent in 2023.

In addition, the Commission found that a majority of Exchange Act reporting FPIs now trade primarily or exclusively on US markets rather than in their “home country”, raising questions about the appropriateness of existing FPI accommodations for these issuers. As of 2023, approximately 55 percent of Exchange Act reporting FPIs had no or minimal trading on any non-US market and maintained listings only on US securities exchanges.

Areas of potential regulatory reform

In light of these trends, in the concept release the Commission outlines and seeks comment on several possible approaches to amending the FPI definition in order to better reflect today’s FPI population while continuing to protect US investors and provide them with access to foreign issuers’ securities. Specifically, the concept release seeks comment on approaches and ways to modify the FPI definition to ensure that foreign issuers only qualify for FPI status if they are meaningfully subject to “home country” regulatory oversight and therefore merit the accommodations available to FPIs under the Commission’s rules and regulations.

The concept release identifies and seeks comment on a number of approaches designed to address these goals, including, but not limited to, the following:

• Revising the “shareholder test” and “business contacts test” prongs of the FPI definition
  • The Commission is seeking comment on whether to amend the existing tests for FPIs, including by lowering the 50 percent US ownership threshold in the “shareholder test” prong or incorporating new factors in the “business contacts test” prong of the FPI definition.

• Imposing a foreign trading volume requirement
  • The Commission is seeking comment on whether to condition FPI eligibility on a minimum percentage of trading volume occurring on non-US exchanges, potentially excluding issuers that trade solely or primarily in the United States. Among other issues, the concept release seeks input on the appropriate thresholds and methodology to be utilized if a foreign trading volume test were to be implemented.

• Requiring listing on a major foreign exchange
  • The Commission is seeking comment on whether to require FPIs to maintain a listing on a “major foreign exchange.” The concept release acknowledges that requiring a listing on a foreign exchange could help ensure that FPIs are subject to meaningful oversight, but implementing such a requirement would necessitate substantial—and ongoing—information sharing between the Commission and foreign exchanges. In this regard, the Commission is seeking input on a range of issues, including the appropriate criteria for determining whether a foreign exchange qualifies as “major,” whether a foreign exchange’s disclosure and corporate governance standards should factor into that determination and how frequently such evaluations should be conducted.

• Incorporating a Commission assessment of foreign regulation
  • The Commission is seeking comment on whether FPIs should be required to be incorporated in—and subject to the securities regulation and oversight of—a jurisdiction that the Commission deems to have a sufficiently robust regulatory framework. This approach would necessitate the Commission identifying and continuously evaluating eligible jurisdictions, which in turn would demand substantial cooperation with foreign regulatory authorities and considerable Commission staff time and resources. In the concept release, the Commission asks whether there are objective criteria or core regulatory requirements that should guide this determination, while also acknowledging potential challenges such as the Commission’s limited expertise in foreign legal regimes.

• Establishing a mutual recognition system
  • The Commission is seeking comment on whether to implement a mutual recognition framework similar to the Multijurisdictional Disclosure System that permits Canadian and US issuers to rely primarily on “home country” disclosure rules for cross-border offerings. Under this model, FPIs from designated jurisdictions would be permitted to satisfy Securities Act and Exchange Act registration and reporting obligations by complying with their “home country” requirements. The concept release seeks comment on a number of aspects to this approach, including which jurisdictions might be suitable candidates for mutual recognition and what standards should govern the selection process.

• Adding an international cooperation arrangement requirement
  • The Commission is seeking comment on whether FPIs should be required to certify that they are incorporated or headquartered in a jurisdiction that is a member of IOSCO and a party to cooperation and information-sharing arrangements.

Implications for issuers

The Commission's review of the FPI definition could lead to significant changes in the regulatory landscape for foreign issuers accessing US capital markets. Should the Commission revise the FPI definition, a significant number of foreign companies currently qualifying for, and benefiting from, FPI status may no longer qualify as an FPI and would be required to comply with the more stringent, burdensome and costly reporting and disclosure obligations applicable to US domestic issuers. They may also need to implement costly changes to their financial and accounting framework, reporting and systems, including preparing financial statements in accordance with US GAAP.

A recent analysis conducted, and cited, by the Commission in the concept release to estimate how many current Exchange Act reporting FPIs would be affected through loss of FPI status if the FPI definition were to incorporate a non-US trading volume component at various minimum threshold levels shows that a significant number of current FPIs would be impacted by such a requirement.

The following table shows the number and percentage of Exchange Act reporting FPIs that would lose FPI status if the definition included a minimum non-US trading volume requirement of 1 percent, 3 percent, 5 percent, 10 percent, 15 percent and 50 percent based on the Commission’s analysis: